THE INTERNATIONAL ADR MOOTING COMPETITION 2013
July-August 2013
MEMORANDUM FOR CLAIMANT
TEAM CODE: 281C
ON BEHALF OF
Energy Pro Inc.,
28 Ontario Drive,
Aero Street,
Syrus
CLAIMANT
AGAINST
CFX Ltd,
26 Amber Street,
Circus Avenue,
Catalan
RESPONDENT
MEMORANDUM FOR CLAIMANT
281C
TABLE OF CONTENTS
LIST OF ABBREVIATIONS...................................................................................................iv
INDEX OF AUTHORITIES......................................................................................................v
INDEX OF CASES AND AWARDS.......................................................................................ix
ARGUMENTS...........................................................................................................................1
I.
FUTURE ENERGY CAN PARTICIPATE IN THE ARBITRATION
PROCEEDING.............................................................................................................1
A. The Tribunal has Jurisdiction to allow a non-signatory to participate.......................1
B. The Purchase contract and the certification agreement form a composite
agreement.......................................................................................................................2
C. The consent given by Future Energy is not one given under Duress.........................3
II.
Ms. ARBITRATOR1 CAN RESIGN DURING THE PROCEEDINGS................4
A. CIETAC and other institutional rules allow resignation of arbitrators....................4
B. Ms.Arbitrator1’s resignation should be allowed.........................................................4
a) Unwilling arbitrator must be permitted to resign....................................................4
b) Ms.Arbitrator1’s concern about fees affects the impartiality of the proceedings...5
C. CLAIMANT can nominate another arbitrator to replace Ms.Arbitrator1...............5
D. Resignation and replacement of Ms.Arbitrator1 will not cause disruption in the
proceedings...................................................................................................................5
III.
CLAIMANT VALIDLY TERMINATED THE CONTRACT................................6
A. Non-payment amounts to a fundamental non-performance.......................................6
a) Non-performance deprived CLAIMANT of its legitimate expectations.................6
b) RESPONDENT failed to comply with its obligation...............................................7
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c) Non-performance was intentional............................................................................7
B. RESPONDENT cannot rely on alleged lack of conformity.........................................7
a) Failure to examine gearboxes...................................................................................7
b) Notification not within reasonable time...................................................................8
i)
Notice not within reasonable time................................................................8
ii)
Notice specifying nature of lack of conformity............................................8
C. RESPONDENT cannot claim restitution.....................................................................9
IV. THE CLAIMANT IS ENTITLED TO THE TERMINATION PENALTY.................9
A. The RESPONDENT had agreed for payment for non-performance..........................9
a) RESPONDENT had agreed for payment for non-performance...............................9
b) Termination penalty valid irrespective of actual harm...........................................10
c) Damages is not grossly excessive..........................................................................10
B. Interest on damages allowed ......................................................................................10
a) Accrual of interest from the date of expenditure....................................................10
b) Interest to be paid even if non-performance excused.............................................11
C. CLAIMANT mitigated losses by terminating the contract in a timely manner........11
RELIEF REQUESTED.........................................................................................................12
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LIST OF ABBREVIATIONS
Art.
Article
CISG
United Nations Convention on Contracts for the
International Sale of Goods 1980
Cl.Ex.
Claimant Exhibit
Contract
Purchase Contract between Energy Pro and CFX
JV
Joint Venture
LCIA
London Court of International Arbitration
Model Law
UNCITRAL Model Law on International Commercial
Arbitration,1985
Off Cmt
Official Commentary
p.
page
PICC
UNIDROIT Principles of International Commercial
Contract 2010
ProcOrder
Procedural Order No.
Q.
Question
W.R
Working Report
iv
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INDEX OF AUTHORITIES
BOOKS/COMMENTARIES
Bianca-Bonell
Commentary on the International Sales Law,
Giuffrè: Milan (1987) p. 268-283
Cited as: Bianca-Bonell
(para 30)
Chengwei, Liu
Remedies for Non-performance: Perspectives from
CISG, UNIDROIT Principles & PECL
(2003)
(para 40)
Y.Derains; E.A.Schwartz
A guide to the new ICC rules of arbitration - by Yves
Derains, Eric A. Schwartz
Cited as: Derains/Schwartz
(para 16)
Fouchard; E.Gaillard; B.Goldman
Fouchard,
Gaillard,
Goldman
Commercial Arbitration
on
International
- edited by Emmanuel
Gaillard, Berthold Goldman, John F. Savage.
Cited as: Fouchard
(Para 3, 20)
Fritz Enderlein/Dietrich Maskow
International Sales Law: United Nations Convention
on Contracts for the International Sale of Goods,
(1992)
(para 42)
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Gary Born
281C
International Commercial Arbitration (Kluwer Law
International, The Hague, 2009) by Gary B Born
Cited as: G.Born
(para 13)
H.M.Holtzmann; J.E.Neuhaus
A guide to the UNCITRAL Model Law on International
Commercial Arbitration: legislative history and
commentary by Howard M. Holtzmann, Joseph E.
Neuhaus
Cited as: Holzmann/Neuhaus
(para 15)
Hugh Beale
Chitty on Contracts, 31st edition
Sweet and m\Maxwell
Cited as: Beale
(para 11, 12)
Jim Thomson
International arbitration act 1974 (cwth) does privity
of contract apply?
Cited as: Thomson
(Para 7)
Joseph Lookofsky,
Understanding the CISG (3rd ed, Copenhagen, Kluwer
Law International (2008)
Cited as: Lookofsky
(para 42)
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Rick Bigwood
281C
Exploitative Contracts by Rick Bigwood
Oxford University Press
Cited as: Bigwood
(para 11)
Schlechtriem; Schwenzer
Commentary
on
the
UN
Convention
on
the
International Sale of Goods (CISG)
Cited as: Schlechtriem&Schwenzer
(para 33)
Vogenauer; Kleinheisterkamp
Commentary
on
the
UNIDROIT
Principles
of
International Commercial Contract
Cited as: Vogenauer/Kleinheisterkamp
(para 36, 37, 38)
Natalie Voser
Multi-party Disputes and Joinder of Third Partiesby
Nathalie Voser
Cited as: Voser
(Para 7)
CONVENTIONS/RULES
CIETAC
China International Economic and Trade Arbitration
Commission
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CISG
281C
United Nations Convention on Contracts for the
International Sale of Goods 1980
NYC
New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards, 1958
PICC
UNIDROIT Principles of International Commercial
Contracts, 2010
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INDEX OF CASES
Austria
Arbitration Award SCH 4318
(15 June 1994)
http://cisgw3.law.pace.edu/cases/940615a4.html
InternationalesSchiedsgericht der Bundeskammer der
gewerblichenWirtschaft SCH-4366
15.06.1994
http://www.unilex.info/case.cfm?id=55
(para 39)
Brazil
Chaval vs Leibherr
Chaval Navegacao ltd v Liebherr Brasil Guindastes E
Maquinas
0351390-45.2011.8.19.001
The Court of Appeal of the State of Rio de Janeiro
(Para 9)
CIETAC
Electric heaters case
China CIETAC Arbitration proceeding
30 March 1999
http://cisgw3.law.pace.edu/cases/990330c3.html
(para 42)
Delchi Carrier, Spa v. Rotorex Corp 1994 WL 495787 (1994)
(para 39)
Germany
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Fabrics case
281C
District Court Berlin
21 March 2003
http://cisgw3.law.pace.edu/cases/990113g1.html
(para 30)
Live fish case
Oberlandesgericht Jena; 8 U 166/97 (266)
26 May 1998
http://cisgw3.law.pace.edu/cases/980526g1.html
(para 30)
Marble slab case
LG Kassel,
15 February 1996, Case No. 11 O 4185/95
http://cisgw3.law.pace.edu/cases/951109a3.html
(para 33)
Tiller case
Appellate Court Oldenburg
5 December 2000
http://cisgw3.law.pace.edu/cases/001205g1.html
(para 32)
UNILEX
Oberlandesgericht Oldenburg, 12 U 40/0
05.12.2000, UNILEX
http://www.unilex.info/case.cfm?id=500
(para 30)
ICC
Dow Chemical
Dow Chemical France v. ISOVER Saint Gobain
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Case No. 4131 of 23 September 1982
110 J.D.I. 1983
(Para 3)
ICC 28.07.2000
ICC International Court of Arbitration 9797
28.07.2000
http://www.unilex.info/case.cfm?id=668
(para 34)
ICC Award, 7585
ICC Arbitration Case No. 7585 of 1992
http://cisgw3.law.pace.edu/cases/927585i1.html
(para 39)
ICC award No.2375 of 1975
ICC award No.2375 of 1975
(para 41)
ICSID
Enron case
Enron Creditors Recovery Corporation and Ponderosa
Assets, L.P. v. The Argentine Republic
(ICSID Case No. ARB/01/3)
July 30, 2010;
http://italaw.com/documents/EnronAnnulmentDecision.
pdf
(para 22)
Víctor v. Chile
(ICSID Case No. ARB/98/2)
April 20, 2010
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Víctor Pey Casado and President Allende Foundation v.
Republic of Chile
https://icsid.worldbank.org/ICSID/FrontServlet?request
Type=GenCaseDtlsRH&actionVal=ListPending
(para 23)
India
Chloro Controls
Chloro Controls (I) Pvt. Ltd. v. Severn Trent Water
Purification Inc. & Others,
2013 (1) SCC 641, Supreme Court of India,
(Para 8,9)
Netherlands
International Military v Rep of Iran HogeRaad der NederlandenC07/202HR
24.04.2009
(para 34)
Philippines
Regidor v Medel
Regidor Gutierrez vs Judge Medel Arnaldo
A.M. No. RTJ-08-2118
http://sc.judiciary.gov.ph/jurisprudence/2008/june2008/
RTJ-08-2118.htm
(Para 11)
Russia
Arbitration proceeding 88/2000
25 January 2001
http://cisgw3.law.pace.edu/cases/010125r1.html
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UNILEX
281C
Centro de Arbitraje de México (CAM)
30.11.2006
http://www.unilex.info/case.cfm?pid=2&id=1149&do=
cas
(para 28)
UNILEX
International Arbitration Court of the Chamber of
Commerce and Industry of the Russian Federation,
134/2002
04.04.2003
http://www.unilex.info/case.cfm?id=1196
(para 38)
Singapore
Lufthansa
International Research Corp PLC v Lufthansa Systems
Asia Pacific Ltd and another
[2012] SGHC 226 Singapore High Court
(Para 9)
United States of America
Florasynth v Pickholz
United States District Court, S.D.(New York)
March 7, 1984; Case No. 83 CIV. 6290 (DNE)
Florasynth Inc., v. Alfred Pickholz;
750 F2d 171,173–74(2d Cir 1984)
http://www.leagle.com/decisionresult/?xmldoc/1984615598FSupp17_1613.xml/docbase
/CSLWAR1-1950-1985
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(Para 17)
Jerry v. Queens
Supreme Court, Appellate Division, First Department
(New York County) (M. Evans, J.)
December 18, 1984;
I Jerry Fischer v. Queens Telephone Secretary, Inc.
http://ny.findacase.com/research/wfrmDocViewer.aspx/
xq/fac.19841218_0047431.NY.htm/qx
(Para 18)
Smith/Enron Case
Smith/Enron Cogeneration Ltd. Partnership, Inc. v.
Smith Cogeneration Int’l, Inc
2000 XXV YBCA 1088 (Para 10)
xiv
ARGUMENTS
I. FUTURE ENERGY CAN PARTICIPATE IN THE ARBITRATION PROCEEDING.
1. The Claimant can bring Future Energy into the arbitration proceeding as against the
respondent’s contention that it is a non-signatory and its consent was obtained under
duress. This proceeds from the following arguments:
A. The Tribunal has Jurisdiction to allow a non-signatory to participate
2. The Contract states that any dispute arising shall be submitted to CIETAC for
arbitration, which shall be conducted in accordance with its arbitration rules in effect
at the time of applying for arbitration [Contract 20.1]. The CIETAC Rules do not
expressly deal with the inclusion of non-signatories of an Arbitration agreement. Law
of the seat of arbitration which is PRC law is also silent on this issue.
3. Under circumstances where there is no law on the issue, arbitrators can apply
transnational legal principles since they belong to no national legal order [Fouchard
p.234]. In this regard, arbitrators may apply any law or rule of law which they
consider to be appropriate in determining their own jurisdiction and in discharging
their duty to comply with fundamental requirements of justice [Fouchard p.234; Dow
Chemical p.899-905].
4. Art.22.1(h) of LCIA Rules, gives the arbitral tribunal the power to order the joinder of
a third party upon application of one of the parties to the arbitration, provided that the
third party and the applicant have consented to the joinder in writing.
5. Art.4(2) of the Swiss Rules of International Arbitration goes even further: it allows
the arbitral tribunal to join third parties without their consent, or even at their request,
without the consent of the parties to the arbitration.
6. CIETAC has stated its intention “to internationalize and modernize its services” and
that “in 2013, CIETAC will continue to, push forward reform.” [W.R 2012]. Thus the
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tribunal’s inclusion of Future Energy based on the international principles followed
by the other international arbitration rules in the case of issues not dealt by the
CIETAC, is in line with the CIETAC’s intention to reform its rules on an international
standard.
7. On participation of the non-signatory, the award will not be unenforceable under New
York Convention. Since Legal constructions which lead to the extension of an
arbitration agreement to non-signatories do not normally constitute a violation of
public policy or lack of arbitrability, which could result in the refusal of recognition
under Art.V(2) of the New York Convention[Voser]. Under the international
jurisprudence surrounding the application of the New York convention, the mere
absence of a party to the text of the agreement in writing under which the arbitration
was instigated does not give rise to any problem with the court making orders under
the IAA to enforce the award[Thomson].
B. The Purchase contract and the certification agreement form a composite
agreement.
8. If a non-signatory is sued, as it directly affects a party to the arbitration agreement and
there are principal and subsidiary agreements, and the third party is signatory to a
subsidiary agreement and not to the principal agreement containing the arbitration
clause, it may be possible to say that even such third party can be referred to
arbitration [Chloro Controls para.104]. Claimant has been directly affected by the
negligent act of Future Energy and thus can validly refer Future Energy to the
arbitration.
9. The principle of intertwined agreements allows the court to extend the arbitration
clause to non-signatories [Chaval vs Leibherr]. The agreements must be an
intertwined agreement or must form a composite agreement. The transaction will be
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of a composite nature where performance of principal agreement may not be feasible
without aid, execution and performance of the supplementary agreements, for
achieving the common object [Chloro Controls]. The delivery of goods under the
Contract is only complete when the fit certificate is given by Future energy. If various
agreements are deemed to be one composite agreement, instead of separate
agreements, then the arbitration clause contained in one agreement may apply to all of
the agreements[Lufthansa].
10. A party to an arbitration agreement is held to be “estopped” from refusing to arbitrate
with a non-signatory where issues between the parties are “intertwined” with the
agreement containing the arbitration provision. [Smith/Enron case]. Hence
RESPONDENT cannot deny Future Energy’s participation based on it being a NonSignatory.
C. The consent given by Future Energy is not one given under Duress.
11. It is the contention of the respondent that Future Energy’s consent was obtained by
Duress i.e. threat of litigation. It is submitted that recourse to law through litigation
provided by law itself can never amount to duress [Beale p.697]. A threat to enforce
one's right through competent authority, if the claim is just or legal, is in keeping with
the fundamental principle of Rule of law [Regidor v. Medel]. Such threat is not
wrongful and does not constitute duress unless the claim is made in bad faith or the
right to sue is otherwise used for some purpose that the law considers improper
[Bigwood p.310].
12. CLAIMANT has a right to start litigation in the event of it being held liable by the
arbitration tribunal due to the fault of Future Energy. Such fault is also accepted by
Future Energy [Cl.Ex.3]. Thus there are clear grounds on which such litigation can be
initiated. And, even a threat of proceedings where there is no ground of action in law
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is prima facie not an unlawful threat, where the threat is bona fide and not frivolous or
vexatious [Beale p.697].
II. Ms. ARBITRATOR1 CAN RESIGN DURING THE PROCEEDINGS
A. CIETAC and other institutional rules allow resignation of arbitrators
13. Art.31(1) of CIETAC Rules provide for replacement of an arbitrator in case of
resignation, validating voluntary resignation. In some circumstances, an arbitrator has
the right to resign from his mandate[G.Born p.1612]. Most leading Institutional Rules
permit resignation of arbitrators under certain circumstances[ICSID Arbitration
Rules-Rule 8(2);UNCITRAL and PCA Rules-Art.13(1)] Some of those circumstances
include unforeseen increase in the workload and addition of new parties[G.Born,
p.1636]. Since the current situation of addition of three days of oral hearings could be
classified as an unforeseen increase in work load, Ms.Arbitrator 1’s resignation must
be permitted.
B. Ms.Arbitrator1’s resignation should be allowed
14. The resignation of Ms. Arbitrator1 should be allowed taking into account the
following reasons:
a. Unwilling arbitrator must be permitted to resign:
15. Keeping in mind the best interest of the parties, an unwilling arbitrator must not be
prevented from resigning, since forcing him to stay and decide the case may interfere
with his impartial and unbiased attitude towards the case. The arbitrator’s choice has
to be pondered upon before considering what limits the arbitrators’ right to resign. An
unwilling arbitrator cannot be forced to perform his functions[Holtzmann/Neuhaus
p.464,465,473].
16. It would be in the best interest of arbitration and the parties to replace an unwilling
arbitrator in order to ensure that the arbitration proceeds in a better atmosphere of
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confidence and to minimize the possibility of a recourse against the award when it is
passed[Derains/Schwartz p.195]
17. No authority grants courts the power to force unwilling arbitrators to continue to
serve. [Florasynth v Pickholz]
b. Ms.Arbitrator1’s concern about fees affects the impartiality of the
proceedings:
18. Although an arbitrator is morally and legally bound to be impartial and unbiased, it is
a common fact that a person’s attitude towards another changes when a conflict
involving money arises between them. Discussions among the arbitrator and the
parties regarding fees during the arbitration may require the vacatur of an arbitral
award. Even though bias was not proven, the court found that “the arbitrator’s
concern about his fees clearly infects the impartiality of the proceeding”[Jerry v.
Queens]
C. CLAIMANT can nominate another arbitrator to replace Ms.Arbitrator1
19. Art.31(1) of CIETAC Rules provide for replacement of an arbitrator who has
resigned.
20. Pursuant to Art.31(3), CLAIMANT has the right to nominate a substitute arbitrator as
the new party appointed arbitrator to hear the issues of quantum. Whatever the cause
of replacement, a substitute arbitrator is appointed or chosen in pursuance of the
procedure which governed the appointment or choice of arbitrator being replaced
(Art.12(2) and 13 of UNCITRAL Arbitration Rules)[Fouchard p.540]
D. Resignation and replacement of Ms.Arbitrator1 will not cause disruption in the
proceedings
21. Resignation and replacement of Ms.Arbitrator1 will not cause any unnecessary
expenditure or undue delay in the proceedings as the CLAIMANT shall immediately
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nominate the substitute arbitrator if the panel and the chairman approve of the
resignation and replacement. In the recent past, there have been several cases where
the arbitral proceedings have taken place efficiently in spite of replacement of one or
more arbitrators.
22. In the Enron case, the tribunal was reconstituted almost immediately after the
resignation of arbitrator H.Grosespiell by replacing him with arbitrator A.Vandenber.
23. Also, upon reference to the case of Víctor v. Chile, wherein three different arbitrators
were replaced upon resignation at different points of time without undue delay or
expenses, it can be understood that resignation and replacement of Ms.Arbitrator1
will not cause disruption in the proceedings.
III. CLAIMANT VALIDLY TERMINATED THE CONTRACT
A. Non-payment amounts to a fundamental non-performance.
24. The CLAIMANT has rightfully terminated the Purchase Contract pursuant to Clause
(15.1) of the Contract upon the failure of the respondent to fulfill its material
obligation of payment for the gearboxes delivered in conformity with the contract.
Threat of non-payment amounts to a fundamental non-performance since it: a)
deprived the CLAIMANT of its legitimate expectations; b) failed to strictly comply
with its obligation; c) was intentional
a) Non-performance deprived CLAIMANT of its legitimate expectations.
25. The Contract was for a period of five years, wherein a sum of USD 10,000,000 was to
be paid by the RESPONDENT in installments [Cl.Ex.2]. The CLAIMANT had
supplied Model GJ-2635 gearboxes as per the contract and thus was entitled to its due
payment. Moreover, the CLAIMANT is deprived of the benefit of the total value of
the Contract which he would have been entitled to had the RESPONDENT performed
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its part of the obligation. The loss of profit to the CLAIMANT was foreseeable by the
RESPONDENT[Art.7.3.1(2)(a),PICC].
b) RESPONDENT failed to comply with its obligation
26. Payment for the gearboxes was expressly stated as a material obligation in the
contractual agreement and formed the essence of the contract [Clause (15.1)].
Pursuant to PICC Art.7.3.1(2)(b), strict compliance was required, the failure of which
amounts to a fundamental non-performance.
c) Non-performance was intentional
27. The CLAIMANT duly performed its obligation by supplying the right gearbox and
had also obtained the necessary certification. The RESPONDENT in its e-mail to the
CLAIMANT reiterated that the latter’s obligation was of obtainment of certification
of the gearbox [Cl.Ex.4], which it did obtain. Thus, the non-performance by the
RESPONDENT is an intentional one.
28. The non-performance by the RESPONDENT was fundamental since at least three of
the criteria laid down in Art.7.3.1(2) were met [30.11.2006, UNILEX].
B. RESPONDENT cannot rely on alleged lack of conformity
29. The RESPONDENT’S demand for a remedy is asking for a fresh certification of the
gearbox since they have withheld their performance and pursuant to PICC Art.7.2.3
since it has failed to demand performance within a reasonable time after it ought to
have become aware of the non-performance [Off Cmt,Art.7.2.2(e)]. RESPONDENT
failed
to:
a) Examine gearboxes b) Notify non-conformity within reasonable time c) Provide
details of non-conformity in notice.
a) Failure to examine gearboxes
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30. The REPONDENT had to examine gearboxes it received of Model GJ-2635 and only
upon confirmation of the conformity was it required to make the payment [Cl.Ex.2,
1.2(b)(iii)]. Due to error in certification, wind turbines of model GH-2635 were sent
to the RESPONDENT. Since the RESPONDENT had not duly examined the goods
prior to payment, it cannot rely on lack of conformity of contractual obligation. Also,
the RESPONDENT further failed to rely on the lack of conformity by failing to
satisfy the requirements of CISG Art.38 [Bianca-Bonell, p.425], pursuant to which the
RESPONDENT should have performed a test run at the least [Fabrics case;
05.12.2000 UNILEX]. The RESPONDENT’S examination of the goods after the
delivery would have revealed that the gearboxes are not in conformity with
the1.5MW wind turbines. Moreover, the RESPONDENT cannot rely on the
certificate of inspection alone since the examination by a third party was conducted
before the delivery.[Live fish case]
b) Notification not within reasonable time
31. Pursuant to CISG Art.39, the RESPONDENT failed to send: i) Notice within
reasonable time; ii) Notice specifying nature of lack of conformity.
i)
Notice not within reasonable time
32. Lack of conformity ought to have been discovered by the RESPONDENT at the time
of delivery of the gearboxes [Tiller case], i.e. prior to 13 March 2012. But the
RESPONDENT discovered the non-conformity only on 18 April 2012, but even then
it waited for almost a month more to send a notice of non-conformity on 16 May
2012. Thus, notice was sent two months after non-conformity ought to have been
discovered and almost a month later than it had actually been discovered.
ii)
Notice specifying nature of lack of conformity
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33. Notification should be as prompt, complete and accurate as possible [Marble slab
case]. Art.39 CISG states that the notice must contain sufficient detail of the nature of
non-conformity [Schlechtriem/Schwenzer, p.609]. Notice merely stating the goods are
of “defective quality” does not suffice [Schwenzerin Schlechtriem/Schwenzer, p.626].
The RESPONDENT has in its e-mail in very vague and unclear terms stated that the
“gearboxes...are completely useless” and that “you must obtain the certification”.
Both, leading to a misleading interpretation thatwrong gearboxes have been received
and that the certification of the gearboxes was not received at all. PICC Illustration 7
of Art.1.7 also suggests that the RESPONDENT loses the right to rely on lack of
conformity for the same reason.
C. RESPONDENT cannot claim restitution
34. As per Clause (15.2) of the Contract, the CLAIMANT is entitled to retain a part
payment of USD 2,000,000 on termination. Moreover, pursuant to PICC Art.7.3.7, a
party is not entitled to claim restitution of what it had supplied [28.07.2000, UNILEX]
and the part already performed should not be affected by termination [24.04.2009,
UNILEX]
IV. THE CLAIMANT IS ENTITLED TO THE TERMINATION PENALTY
A. The RESPONDENT had agreed for payment for non-performance
35. The CLAIMANT is entitled to the termination penalty of USD 8,000,000 pursuant to
Clause 15.2 of the Contract since: a)RESPONDENT had agreed for payment for nonperformance b) penalty valid irrespective of harm; c) amount is not ‘grossly
excessive’
a) RESPONDENT had agreed for payment for non-performance
36. On non-performance by the RESPONDENT of its obligation and pursuant to Clause
15.2 of the Purchase Contract, a specified sum of USD 8,000,000 was imposed as
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derived from the difference between the contract price of USD 10,000,000 and the
value of gearboxes delivered of USD 2,000,000. This formula of ascertaining the
damages
constituted
a
penalty
clause
falling
under
PICC
Art.7.4.13
[Vogenauer/Kleinheisterkamp,p.920].
b) Termination penalty valid irrespective of actual harm
37. Art.7.4.13 states that it is irrelevant whether the harm is greater or smaller than the
sum specified in the clause. [Vogenauer/Kleinheisterkamp,p.924] Despite this, it is
pertinent to note that the CLAIMANT has suffered considerable losses in the form of
loss of profit amounting to USD 8,000,000. Hence, the CLAIMANT can rightly claim
the penalty.
c) Damages is not grossly excessive
38. The Tribunal shall while determining whether reduction of penalty pursuant to PICC
7.4.13(2) be made have regard to the loss suffered by the CLAIMANT as a
consequence of the RESPONDENT’S breach [04.04.2003, UNILEX].
The
CLAIMANT has suffered a loss of profit amounting to USD 8,000,000 and the
damages claimed are equivalent to the harm sustained. Moreover, the Tribunal should
uphold the freedom of contract and provide greater measure of certainty in
commercial transactions [Vogenauer/Kleinheisterkamp,p.924]. Thus, the set amount
should not be reduced.
B. Interest on damages allowed
a) Accrual of interest from the date of expenditure
39. Since PICC does not explicitly deal with interest-on-damages for monetary
obligation, reliance can be placed on CISG Art.78 where interest can be imposed on
“any other sum”, i.e. damages [15.6.1994, UNILEX; Delchi v. Rotorex]. Art.78
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MEMORANDUM FOR CLAIMANT
281C
provides that the creditor is entitled to interest ‘without prejudice to any claim for
damages.’ The purpose is to make a distinction between interest and damages to give
a compensation for the financial loss [ICC Award,7585]
40. Since Art.78 doesn’t state the starting point for the accrual of interest, it shall be taken
as the date of the occurrence of the harm [Chengwei, Liu]. The harm occurred when
the CLAIMANT incurred expenditure and the RESPONDENT declared the contract
suspended, thereby, leaving the CLAIMANT in loss due to expenses already incurred
with the denial of reimbursement by the RESPONDENT of the expenses by purchase.
b) Interest to be paid even if non-performance excused
41. For every non-payment per installment if the contract had been duly performed by the
RESPONDENT, the CLAIMANT suffered loss of profit. The purpose of interest is to
indemnify the loss of profit of the creditor who has been deprived of revenues that
could have been generated out of the amount due had it been paid sooner [ICC award
No.2375 of 1975].Thus, even if the RESPONDENT contends that it rightfully
withheld performance [Art.7.1.3, PICC] it has to pay interest on damages.
C. CLAIMANT mitigated losses by terminating the contract in a timely manner.
42. CLAIMANT’s act of terminating the contract is an attempt in mitigating losses.
Idleness or the speculative delay of action amount to failure to mitigate
[Lookofsky,Art 77; Electric heaterscase]. In the instant case, CLAIMANT was not
idle and terminated the contract soon after the lapse of the 30-days period post default
notices. Termination is considered sufficient to mitigate losses [Enderlein, p.307]
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MEMORANDUM FOR CLAIMANT
281C
RELIEF REQUESTED
43. In light of the arguments advance, CLAIMANT respectfully requests the Tribunal to
find that:
I.
Claimant can successfully bring Future Energy into Arbitration proceedings.
II.
Ms. Arbitrator 1 can resign during the arbitration proceeding.
III.
Claimant validly terminated the contract.
IV.
Claimant can claim termination penalty along with interest on damages.
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